India's 10-Year Bonds Post Biggest Weekly Decline Since June

  • Rupee drops 0.7 percent in third straight week of losses
  • Foreign holdings of local debt fell in the last three days

Indian sovereign bonds completed their biggest weekly loss since June and the rupee weakened as foreigners cut holdings of the nation’s debt amid rising odds of an interest-rate increase by the Federal Reserve this year.

Fed futures traders now see a 50 percent chance of a December liftoff, up from about 35 percent on Tuesday, as policy makers dropped a reference to global risks and asserted that economic growth remains “moderate” while holding off raising rates on Wednesday. Foreign holdings of rupee notes fell 17.4 billion rupees ($267 million) from Monday’s record 3.56 trillion rupees, data from the National Security Depository Ltd. show.

The yield on government notes due May 2025 rose six basis points from Oct. 23, the most since the week ended June 26, to 7.64 percent in Mumbai, according to prices from the central bank’s trading system. It rose one basis point on Friday.

“Foreigners are preferring to go light given the fears of a Fed hike later this year,” said R. K. Gurumurthy, Mumbai-based treasurer at Lakshmi Vilas Bank Ltd. Concern surrounding the Fed and month-end dollar demand from importers have led to the rupee’s weakness, he said.

The rupee retreated 0.7 percent, the most in five weeks, to 65.2650 a dollar, prices from local banks compiled by Bloomberg show. It rose 0.1 percent on Friday, taking its gain for October to 0.5 percent following a 1.4 percent rally in September.

India fully sold 150 billion rupees of sovereign bonds at an auction on Friday, the central bank said in a statement.

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